Column: Which is the most profitable Premier League team? Ask an accountant and he’ll start sweating
22 May 2019
Tottenham and Liverpool have been hailed for their 2017/18 accounts – but does that make these two clubs the most profitable in the Premiership?
There are many ways to measure whether a business is profitable or not. Using two common methods to find the profitability of Manchester United, one will place the club top of the Premier League – while the other ranks The Reds at the bottom of the table.
A common perception of the Premier League is that it is very lucrative. This is often used as an explanation for why clubs in the Championship often overstretch themselves on transfers and wages to get to the horrendously-named ‘promised land’.
So, is the Premier League profitable and if so, who are the most profitable club? The answer depends through which lens you choose to view the league.
Profit, like love, has many definitions. I love my football club, my wife, the films of John Carpenter, my dog and Robert Smith of The Cure, but not necessarily the same way or in the same order* (especially if my wife and/or dog are reading this) and profit too needs to be viewed just as cautiously to avoid confusion.
A finance textbook defines profit as income less costs. Income for a football club is mainly from broadcasting, matchday and commercial sources, and this is how you would normally see it in a profit or loss account (also called an income statement) but clubs also generate income from player sales, property rentals, loan fees and interest earned on cash balances.
Liverpool and Spurs generating more than half
The vast majority of clubs show these secondary income sources elsewhere in the accounts than the top line, but not all.
For most clubs the main costs are player related. Wages and transfer fee amortisation (accounting speak for spreading the transfer fee paid by a club over the length of the contract signed by the player) can sometimes swallow up all of a club’s income, and on top of these there are the day-to-day overheads such as insurance, ground maintenance, transport and so on.
‘Operating profit’ is therefore all income less all costs. For Premier League clubs in 2017/18 operating profits total £542 million, with two clubs, Liverpool and Spurs, generating more than half the total.
However, included in operating profit are some income sources, especially player sale profits, that are volatile and unlikely to recur every year. Liverpool made a profit on player sales of £124 million in 2017/18, mainly from Coutinho’s move to Barcelona, compared to £38 million the previous season.
Costs too can have some non-recurring elements. Chelsea in 2015/16 paid £67 million to Adidas to obtain an early release from their kit-manufacturing deal. This depressed profits for that one season only.
Whilst the Premier League is not seen as a ‘selling division’ and attracts criticism from some quarters for buying too much talent from elsewhere
Analysts often adjust operating profit into ‘cleaned’ EBIT (Earnings Before Interest and Tax) which strips out both non-recurring income and costs. Applying this to the Premier League for 2017/18 converts the £542 million profit to a loss of £205 million.
EBIT highlights the impact that player sales in particular have on some clubs (Chelsea dropped from 4th in terms of operating profit to 19th for EBIT).
Whilst the Premier League is not seen as a ‘selling division’ and attracts criticism from some quarters for buying too much talent from elsewhere, the financial impact that player sales have is significant.
EBITDA loved by finance analysts
Critics of EBIT point out that such an approach is unfair as it removes the benefits of player sales but includes the cost of player purchases in the form of transfer-fee amortisation.
Another profit measure EBITDA (Earnings Before Interest Tax Depreciation and Amortisation) can therefore be created by adding back both amortisation and depreciation (which is the same as amortisation but applies to major capital expenditure assets such as stadia, training grounds and equipment).
EBITDA is very popular with finance analysts working on company valuations because it is seen as a quasi-cash figure that strips out all of the accounting jargon.
EBITDA presents a much more positive view of the Premier League, with total profits coming to £999 million. It is also noticeable how the ‘Big Six’ take the top positions in this profit measure, as the impact of their big spending on transfer fees and stadium spending is eliminated.
Manchester United appear from nowhere to top this method of assessing profits and this is the one that they themselves use in their press releases.
Man Utd's huge debt
Some clubs have loans from banks that are interest bearing and others don’t, so finance costs are usually tucked away a bit further down the profit or loss account, under operating profit. Taxation, which is a minefield, is also shown below this sum and can vary substantially from year to year and club to club.
If these two types of expense are subtracted from operating profit, a net profit figure is produced.
Manchester United on this measure go from the top to the bottom of the table, reflecting the club’s high finance costs on the £500 million of debt it has and some unusually punitive tax costs in 2017/18.
...look around nervously to check no one is listening, and whisper in your ear: ‘It’s whatever you want it to be’
Spurs return to the top of the table, buoyed by the benefits of playing their matches at Wembley and an iron grip on player wages that may have to be released if they want to compete for the Premier League title.
Which of these profits gives the ‘best’ indicator of the financial well being of the Premier League depends on which costs you consider to be worthy of taking into consideration, or perhaps which team you support.
Ask an accountant which profit measure is best and the chances are they he or she will take you to an unoccupied room, sweat profusely, look around nervously to check no one is listening, and whisper in your ear: ‘It’s whatever you want it to be’.
*Robert Smith of The Cure is of course top of this particular table; I just hope my wife is understanding.
Kieran Maguire is a lecturer in football finance at the University of Liverpool. He is widely used in several media as an expert in sport finance, sports broadcasting rights and the budget. Find him at Twitter: PriceOfFootball or @KieranMaguire